Poverty Reduction

The economy of a developing country is like a river, with prosperity on the top and destitution at the bottom. Powerful currents churn the water, especially in the river’s deeper reaches. Many people are caught in those currents and dragged down into poverty’s vortex, but most of those people are eventually released from the downward pull and can climb higher, at least temporarily. Indeed only a fraction—one-quarter to one-third by some estimates—of those of those who are in poverty at any given point are always immersed in poverty. Many more families move in and out of poverty than are perpetually trapped by it. Therefore, reforms that specifically target “the poor” are less likely to help them than are measures to strengthen the upward flows and lessen the pressures pushing people downward.

Policies that increase the pull of upward currents (such as the availability of good jobs) will reinforce the aspirations and reward the initiatives of those trying to swim clear of poverty. Policies that limit the force of downward currents (such as illness) will reduce people’s vulnerability, helping them stay clear of dangerous vortexes that can entrap even those who are strong swimmers.

Whether one is sucked into the poverty vortex or remains at a safe distance depends on one’s own combination of micro “livelihood factors.” Livelihood factors include marketable skills, family support systems, physicalassets (such as land and housing), access to reliable healthcare, and ties to those with money or power. Each factor can be positive or negative, and to differing degrees. For instance, a family or individual may have no marketable skills, some skills, or many skills. Similarly, a family may have no access to health care, limited access, or excellent access. Together, these factors determine the limits of what the poor can or cannot do for themselves. An individual or family with a combination of micro factors in which the positive significantly outweigh the negative has a far greater chance of garnering the income and building the assets necessary to escape poverty permanently then those that do not

Enlightened actors—whether elites, government officials, or NGOs—who wish to empower the poor must ensure that each of their initiatives has a positive impact on as many livelihood factors as possible, ideally in a way that enhances opportunity, reduces risk, and improves connectivity simultaneously. Turning characteristics that exclude or hamper the poor’s ability to take advantage of markets into ingredients that empower them to do so is the key to increasing incomes and assets—and to transforming lives.

Governments, NGOs, and enlightened elites acting on their own will also have to balance between short- and long-term goals. Short-term goals often receive priority, but poverty cannot be permanently reduced without attention to long-term objectives. For instance, efforts to quickly create new jobs will have very little impact if the investment environment is not attractive to businesses. Improving the supply of electricity, the quality of roads, and the swiftness of customs procedures, however, are typically long-term ventures and usually dependent on a wider effort to strengthen infrastructure.

Governments are undoubtedly the most powerful actors, at least potentially. Some factors—such as the quality of security, the rule of law, and transport links—depend almost exclusively on how well the state operates. And almost all factors are influenced in some degree by the robustness of a country’s administrative and judicial systems.